The UK information commissioner was prevented from taking stronger action against Google earlier this year after its Street View cars collected sensitive Wi-Fi because the Data Protection Act at the time limited his powers.

Rob Halfon, the Conservative MP for Harlow, revealed today the information commissioner, Christopher Graham, told him his office was hamstrung by UK data protection legislation when it came to taking action against Google. The Information Commissioner's Office (ICO) has since been given extra powers to fine organisations up to £500,000 for "serious breaches of the Data Protection Act".

The US technology company admitted earlier this year that its Street View cars had collected sensitive personal information – including whole emails, passwords and URLs – from some Wi-Fi users on unsecured networks while photographing UK locations. Google admitted to "mistakenly" collecting the data in May, sparking criminal and privacy investigations in a number of countries including the UK.

Graham was criticised for ruling in July that Google was unlikely to have collected "significant amounts" of personal data or data likely to "cause any individual detriment", despite an ongoing criminal investigation in the UK and contradictory findings by equivalent bodies in other countries.

Google last week admitted the data harvested when its Street View cars photographed residential areas was more sensitive than initially thought. The ICO subsequently said it will re-examine the data following the revelations.

"In the view of the UK information commissioner, who examined the Google computers, there was really nothing to worry about [at the time]," Halfon said, during an MPs' debate about privacy and the internet held in Westminster Hall.

"I have subsequently spoken to the information commissioner. His view is that he would have liked to take stronger action against Google, but that his office was constrained by the Data Protection Act 1998," he added.

"Perhaps this is true. But why did he not say so at the time? ... Indeed, their public announcement in July was all the more surprising given the actions of foreign governments."

An ICO spokesman confirmed after the debate that the information commissioner had subsequently been granted extra powers. "On 6 April 2010 the Information Commissioner's Office was given the power to issue monetary penalty notices, requiring organisations to pay up to £500,000 for serious breaches of the Data Protection Act. As the Google Street View data breach occurred before this date, even if it was appropriate, we would be unable to use this enforcement power on this occasion," he said.

The news will anger privacy watchdogs who called the original ICO ruling "farcical". Halfon said the body's action had been "lamentable and lily-livered".

Ed Vaizey, the culture minister, revealed during the debate that the Metropolitan police "have decided it would not be appropriate to launch a criminal investigation" over Google's data breach.

Vaizey said he will meet with the information commissioner next week "to discuss what he intends to do as the next step, certainly what he intends to do about the data, but also what he intends to do in terms of Google's breach of data protection".

An investigation by the Canadian privacy commissioner found that Google's data harvesting occurred when a lone engineer programmed the company's Street View cars with code enabling them to scoop so-called "payload" data from unsecured wireless internet connections in the near vicinity.

Google admitted the "mistake" in May following an investigation by the German privacy watchdog, but the true nature of the data collected has only come to light in recent weeks. The company now says it wants to delete this data as soon as possible and is cooperating with investigatory bodies around the world.

The company faces an unprecedented 38-state class action on this matter in the US, a judicial inquiry is ongoing in Spain, and investigations are underway in a number of European countries.

Halfon also said he was "given the strong impression" by Google on 14 September that the data collected by the company was "very basic and did not amount to very much".

"It was confusing for me then to read what Google's vice-president of engineering and research, Alan Eustace, said on the company's blog over the weekend," he added.

"[...] I hope sincerely that this house, the government, and the British public, have not been deliberately misled. I hope also that Google's U-turn on this is voluntary, rather than a scenario where they only admitted the truth because investigations by other governments have given them no alternative."

Halfon also used today's debate to call for a self-regulatory internet bill of rights with the power to fine private companies found guilty of invasions of privacy. He said the UK was in need of "an information commissioner who acts as a policeman, not an apologist".

Don Foster, the Liberal Democrat MP for Bath, said any inquiry should also look at the role of the ICO. "For [the ICO] it's difficult because there is a lack of clarity about where the boundaries of his powers exist," Foster added. "It's difficult to understand how someone meant to look at these issues on our behalf is being prevented from doing so by the legislation."

Nadine Dorries, the Conservative MP for Mid Bedfordshire, said it "isn't enough for the information commissioner to stand back – he needs to push the boundaries and test them".

The MP for North East Milton Keynes, Mark Lancaster, today said the driver of the vehicle had refused to stop recording the imagery when challenged by the group, adding that Google had not responded when requests were made to remove the specific imagery.

Alex Deane, director of campaign group Big Brother Watch, said: "Google must now sit up and take notice of the concerns of many members of parliament who today voiced their concerns at the company's reckless approach to personal privacy.

"They will no doubt get a verbal ticking-off from the internet minister Ed Vaizey when they next meet, but a simple slap on the wrist doesn't go far enough."

"It is a great shame that the Met have let Google off the hook as what they did was plainly wrong. The ball is now back in information commissioner's court. Thus far he has been an apologist for the worst offender in his sphere not a policeman of it – let's hope that he now shows some teeth and punishes Google for their wrongdoing."